Forex is a relatively new market in international trading. Prior to 1998, forex trading was not open to the public. Nowadays, more and more people are joining the forex market to venture out in money making. The business of trading money has little room for error therefore risk management techniques are essential. It’s like gambling, you can win big and lose big time as well. Risk management techniques should be utilized prior to and after positions are opened.
Protective stop loss is an important risk control technique to prevent your capital from extra losses. Stop loss works like a limiter, telling you up to how big a loss you can take and when you need to pull the plug. Stop losses draws a defining line that allows you to risk a tolerable account portion per open position. This simply means how much you can play to lose until you start earning money.
There are certain thresholds to losing and this is something every trader has to understand. Like in gambling, you should know when to stop. This margin of tolerance serves as a buffer for you to wait till the market becomes favorable and the losses turn into gains.
There are several risk management techniques in Forex trading. Like a serious trader, you should have a logical betting strategy. You can use the Martingale and anti-Martingale technique. Martingale is doubling your bet every time you lose, so as to cover your previous bets once you win. Anti-martingale is the complete opposite and less risky, wherein you bet half of your previous bet everytime you lose.In risk management, you should know the odds. There are technical analysis methods for you to check the odds. Learn how to stack the odds in your favor.
You should be aware of how much your trading capital is. Be honest enough to admit what your bad gambling habits are. You have to be patient enough and avoid making rash and impulsive decisions.Finally, determine market liquidity for your trade. In the Forex markets, liquidity is almost exclusive to major currencies.